New Rules to Bring Fairness to Credit Card Debt Cases in New York

The Associated Press reported that New York’s chief judge proposed new filing requirements for debt collectors to bring more fairness to state consumer debt cases and put them in line with due process.

Judge Jonathan Lippman said many debtors discover they’ve been sued only after their bank accounts are frozen or their wages garnished. Most of them have no lawyer and are confused about old, often resold, debts, he said, and many never appear in court. Others are never served notice of a lawsuit and end up losing the case by default, he said.

“It’s very much analogous to mortgage foreclosures in our minds. It’s not fair. It doesn’t comport with due process,” Lippman said, a reference to circumstances that prompted New York court administrators to establish similar requirements in foreclosure cases as a way to protect homeowners who fall behind on mortgage payments.

More than 100,000 consumer credit lawsuits are filed in state courts annually, most from third-party buyers of delinquent credit card debt that often includes so-called “zombie” debt that’s several years old, Lippman said.

Following a 30-day comment period, the rules would be implemented by June 15. They are intended to stop default judgments based on what the judge called “robosigned” affidavits “containing few if any facts relating to the history of the debt at issue.”

Instead, plaintiff creditors would have to file detailed court affidavits identifying the specific account at issue, the credit agreement, the complete chain-of-debt ownership, and an itemized list of the principal, interest and other charges. Another affidavit would have to attest that time hasn’t run out on the legal collection period.

In order to prevent so-called “sewer service,” where notices to defendants are simply thrown away, creditors would have to file an affidavit attesting that the debtor was served with notice of the lawsuit and also provide the court a copy, including an envelope addressed to the debtor and return address of the court clerk. Default judgments would be prohibited where notices are returned because of an unknown or wrong address.

If you have been reading my posts for the last few years, you’ll understand that both junk debt buyers and, surprisingly, credit card banks have difficulty documenting credit card debt lawsuits to due process court standards. Otherwise there would be no need for “robo-signed” affidavits.

Here is what could happen in a credit card lawsuit as explained by an attorney accustomed to successfully defending “guilty” consumers.

These new rules mean cases in New York will have to be documented and filed individually by the plaintiff. There will be no more robo-anything or data batching where dozens to hundreds of cases are filed simultaneously with the “push-of-a-button” in some data processing scheme.

That means more time, labor, and expense for the junk debt buyer or bank. That reality will take a lot of the money out of filing these claims and remove a lot of the incentive to file them. It could mean a return to the “toddler days” of the credit card and debt industries. That was when banks rarely filed credit card lawsuits because of the preparation and filing expense and the risk of not winning due to faulty documentation issues. Back then junk debt buyers (third-party buyers of delinquent credit card debt referenced above) did not even exist for the most part. Since those “toddler days” the pendulum has swung all the way to the blanket filing of credit card lawsuits. Now because the courts are tiring of bank and junk-debt-buyer plaintiff abuses of the justice system, it hopefully will swing back to fewer then few credit card debt lawsuit filings as other states follow New York’s lead.